Novartis Reshapes Portfolio via GSK, Eli Lilly Deals

NEW YORK (The Deal) -- The battle against cancer has taken on a financial dimension, with Novartis (NVS)agreeing to take a host of oncology drugs from GlaxoSmithKline (GSK) in the largest of four multi-billion transactions by the Swiss company, and Pfizer (PFE) reportedly missing out in a run for AstraZeneca (AZN) cancer treatments.

Novartis, of Basel, on Tuesday agreed to pay up to $16 billion for Uxbridge, England-based GlaxoSmithKline's oncology portfolio. The figure includes as much as $1.5 billion depending on the development of some medicines and also gives Novartis first rights to the U.K. company's oncology pipeline.

The Swiss company will also sell its vaccine unit, minus flu vaccinations, to GlaxoSmithKline for as much as $7.1 billion, including $5.25 billion immediately and up to $1.8 billion in development milestones.

Novartis said it will launch a separate auction for the flu activities.

"The transactions mark a transformational moment for Novartis. They focus the company on leading businesses with innovation power and global scale," said Novartis CEO Joseph Jimenez in a statement.

Novartis and GlaxoSmithKline will also pool their over-the-counter medicine activities in to a joint venture that will be 36.5% owned by Novartis and make GlaxoSmithKline a consumer healthcare bulwark.

Finally, Novartis will sell its animal health business to Indianapolis-based Eli Lilly (LLY) for $5.4 billion.

The transactions follow Jimenez' promise last year to take a hard look at the company's smaller businesses.

Novartis shares rose 2.5%, or Sfr1.75, to Sfr76.45 ($86.43) in morning Zurich trading, while GlaxoSmithKline gained 5.3%, or 83 pence, to 1,642 pence ($27.62). The British company said it plans to return £4 billion to shareholders.

Novartis' animal health sale is expected to be completed in the first three months of 2015 and the remaining deals are to close in the first half of next year. Novartis said it could finance the deal through excess liquidity and temporary financing but may ultimately need to sell new bonds. It also expects to book "significant gains" from the divestments.

The world's pharmaceutical companies have been trading units and snapping up upstarts for nearly a decade as they try to focus on what they see as their most profitable business. Novartis will now primarily focus on cancer-fighting though it still has its Sandoz generics division, which accounts for about 13% of revenue.

It beefed up Sandoz with a number of major acquisitions in the early throes of the consolidation--it paid 5.65 billion for Germany's second-largest generics maker Hexal and a 67.7% stake in U.S. partner Eon Labs in 2005. At the time, it saw its future in off-patent medication.

However, it's not the only company hoping its pocketbook can carve out a cancer-fighting future. The announcement comes amid reports Pfizer also wants to expand its oncology business. The New York-based company reportedly approached AstraZeneca about a potential takeover agreement, with analysts saying the suitor was likely interested in its cancer portfolio.

Pfizer is widely expected to make another run at the company if its failed approach doesn't flush out another suitor.

Astrazeneca's shares leapt 7.9%, or 297 pence, in morning London trading on Tuesday to 4,078.5 pence. Prior to the share increase, it was worth about £49.2 billion ($82.8 billion).